So you like the idea of starting your own insurance agency but are not quite sure where to begin or what it will entail?
Well, the first thing you need to know is that there’s a difference between running your own insurance agency and running your own successful insurance agency.
A successful independent insurance agency comes with much responsibility and effort, and before jumping into the pool, you must first understand what is required.
In this post, we will discuss some of the most critical considerations that will impact on your ability to start your own insurance firm and its success going forward.
1) Capital Needed to Start
The lower end of the capital you need can be between $5,000 and $50,000, with more expensive insurance firms ranging from $100,000 to $1,000,000.
This depends on many factors, including location and operation. You can apply for a business loan, of course, but you will need a good credit history, work experience, and a good business plan.
Another option is to look into grants or crowdfunding.
Start-up expenses include rent security deposit and first month’s rent, office equipment, agency management system, licensing and legal costs, and insurance.
2) Getting Access to Insurance Carriers to Sell Products
For new insurance agencies, getting access to insurance carriers isn’t a simple task.
Carriers want to see a business plan, previous loss ratios, and an existing book of business. A commitment to a particular premium volume in a specific time span is another factor.
Usually, agencies that are part of an aggregator will have more access to insurance carriers.
At startup, it is best to only get one or two appointments because you will need to meet carrier requirements.
3) Lease or Buy an Office Space
There are pros and cons with both leasing and buying an office space.
If you opt to lease, there is no down payment, you can deduct lease payments for tax purposes, the landlord is responsible for repairs and maintenance, and you may lease in an expensive area which can improve the visibility of your business to the right crowd. However, you cannot build equity.
If you opt to buy an office space, you can build equity and rent out additional space, have stable expenses, deduct interest payments, and depreciate the building.
4) Buy an Existing Book of Business or Start from Scratch
Before buying an existing book of business, you must look at various factors.
Why is the insurance agency selling their book in the first place? What is the level of automation and documentation? Files should be easily sought through the book. Find out the current market value of the book and if the carriers match up to what you have.
There are listings of agencies on sale online that help you determine the market value. Also, it helps to get some legal advice from a lawyer.
If you don’t feel comfortable buying any agency’s book of business (after research and discussion), then it may be a sign to start your own.
The downside of this is that it will take you longer to build a clientele.
5) Should I Join a Cluster or Do I Stay Solo?
A cluster group is an association of several independent insurance agents.
One reason some insurance agents join a cluster versus staying solo is meeting sale requirements. Certain insurance companies will not allow you to sell their product unless you meet a particular minimum or quota.
In a cluster, the group pools business to qualify for appointment by higher-grade insurance companies.
There are some advantages to joining a cluster, including agency management software, increased negotiation commission rates, and being able to quote specialty insurance. You may have to meet a cluster’s minimum requirements and pay an initiation fee.
However, be careful for red flags like the cluster group asking for part ownership of your business.
Ultimately, it is up to you whether you want to join a cluster or not. Simply make sure the group you want to join is compatible.
6) When Will My Insurance Agency Start to See a Profit?
It is hard to determine when your insurance business will start to see a profit.
The answer isn’t always cut and dry.
Businesses in general, however, can determine profitability by sale projections, gross profit estimate, the cost of providing your services, and other expenses.
In short, the answer depends on each specific business.
7) How Much Can I Make Per Year?
Income for insurance firms will vary based on different factors.
Qualifications, state, region, number of customers, and experience can help you make an estimation.
On average, insurance sales agents make $49,990 per year.
Owners, on the other hand, tend to make more.
For example, the average Allstate owner makes more than $112,000 annually, but again that depends on several factors.
8) Will It Help Me or My Business If I Get Insurance Designations (Certifications)?
Insurance certifications can increase earning potential, professional growth, promotions, and job security.
This can make you more valuable to clients. It is recommended to earn designations, but not a requirement. In order to become certified, you may need to meet certain education, ethics, and experience qualifications.
You will need to pay a fee to take courses and an examination.
For example, the Charter Life Underwriter/Chartered Financial Consultant (CLU/ChFC) emphasizes insurance planning.
These certifications require three years of work experience and you must take eight separate multiple choice tests.
9) How Do I Prospect or Generate New Business (Get Customers)?
Getting new customers can be a challenge, but there are a few things you can do to reach the public and generate business. One way is to form a partnership with a local real estate agent or office.
Networking with real estate businesses (or other businesses based on the type of insurance you sell) is a great idea because those businesses can refer their customers to your firm. Another way is to create a website – or social media page – and reach customers online.
New customers can refer you to their friends, family members, or colleagues.
Also, don’t be afraid to give yourself a professional appearance; brochures, free promotional tools, and other items can be great to help your new firm.
10) Do I Need a Website?
A website would be a great idea to build for a new insurance firm.
Not only will this give your business a professional look, but it can attract new customers. Make sure that the website helps make your insurance company stand out. On the website, add contact information, service descriptions, and testimonials.
Hire a professional web designer and content writer to achieve the look that you are seeking.
The content writer can create original, insurance-related content that will answer clients’ questions.
11) Should I Use Social Media?
Social media marketing is great for advertising new businesses, including a new insurance firm.
Social media websites such as Facebook, LinkedIn, Instagram, and Twitter are perfect for promoting and building a positive public perception.
More brand recognition, increased customer conversion, reduced marketing costs, and improved search engine rankings are some benefits of utilizing social media.
Be aware that there will be competitors and customers who may be displeased with services, and can give your page a low rating (along with a negative review).
12) What Type of Licensing is Required to Sell Insurance?
In order to sell insurance, you must be licensed. The type of required licensing depends on the country and state where you are giving services.
Depending on location, you may have to get multiple licenses based on the type of insurance you plan to sell. Find out the requirements on your state’s insurance licensing board. Applicants may have to take certain courses and training; you may have to take a state exam.
If there are licensing courses, sign up and take them. Register for the state licensing exam and pay the required fees.
And that, in a nutshell are some of the key considerations you need to think about before you decide start your own insurance agency.
While some aspects may seem very daunting, none of them are a barrier too big to overcome.
Do your homework, speak to others who have been in the business and above all, have a positive attitude.
Professional Insurance Agent of Kentucky
Membership in PIAK is an investment that provides tangible benefits and services, saving you time and money so you can increase your agency's bottom line, as well as connecting you with agents at all experience levels across the state and nation. Learn more about membership benefits here.
Kentucky Department of Insurance
Learn about licensing requirements, industry best practices and current state law. Read more here.